Country by Country Reporting

Filing deadline is fast approaching

The OECD’s Base Erosion and Profit Shifting project is substantially changing the tax and transfer pricing landscape across the world and the Country by Country reporting requirements is viewed as one of the biggest outcomes of this project.

The filing deadline will be during 2017 which, depending the fiscal period, could be as early as on 1st January 2017. Therefore, with only five months to go, businesses should deepen their understanding and assess their readiness to collect and aggregate the data needed under the CbC reporting requirements and evaluate the appropriateness of existing transfer pricing arrangements.

What is CbC reporting?

Country by Country (“CbC”) reporting has been introduced to the International Tax and Transfer Pricing landscape by Action 13 of the OECD Base Erosion and Profit Shifting (“BEPS”) project and over 60 countries across the world have either already implemented or committed to implement CbC reporting - and this list is fast growing.

EU has also recently amended the EU Administrative Cooperation Directive to extend the exchange of information which makes CbC reporting mandatory for all multinationational companies (“MNCs”) that have a company or branch in the EU.

CbC reporting only applies to MNCs with annual consolidated group revenue of €750 million or more in the preceding fiscal year.

In essence, large MNCs will have to provide an annual report that breaks down key elements of the financial and tax information relating to the global allocation of their income and taxes, among other indicators of economic activity, by each jurisdiction that they operate in. It is expected that CbC reporting will better ensure that adequate taxes are paid in the jurisdiction where profits are generated, value is added, and risk is taken. The ultimate objective, of course, is to enhance transparency and help tax authorities assess potential transfer pricing risks.

When and where a CbC report will need to be filed?

Based on the OECD guidance, the CbC report will be required for the fiscal years starting on or after the 1st of January 2016 (FY16) and should be filed within 12 months of the relevant year end. Therefore, depending on the reporting period, the first CbC filing maybe required as early as on 1st January 2017.

The report is primarily to be filed where the ultimate parent company is headquartered (HQ). If the HQ country has not implemented CbC reporting, MNCs should file in the country where CbC reporting is required and the MNC has most significant activities taking place (“surrogate parent”).

How is it relevant to Middle Eastern groups?

Although, no country in the Middle East has so far implemented CbC reporting, foreign subsidiaries and/or branches which are part of a Middle Eastern group may be required to provide such information to another tax authority.

Therefore, a Middle Eastern HQ MNC may have a CbC reporting obligation in another country and it will be important to consider, for example;

Is the group’s consolidated group revenue over €750 million (or a near equivalent amount in domestic currency as of January 2015)?

Does the group have taxable presence in those overeseas jurisdictions which require CbC reporting and if so, when is the reporting deadline?

Will the group have to appoint or nominate an overseas “surrogate” parent to ensure appropriate compliance with CbC reporting requirements in all relevant jurisdictions across the world?

How should the required data be gathered?

What risks arise from CbC data and what corrective action can be taken to mitigate potential exposures?

Is the existing transfer pricing policies and documentation sufficient, robust and defendable?

How can Deloitte help?

This is a new and significant reporting requirement that companies will need to understand and assess their ability to collect data and resulting information that it provides to taxing authorities. Our specialists can help you gauge your organizational readiness to collect and aggregate the data needed under the CbC Reporting requirements and assess the appropriateness of existing transfer pricing arrangements.

In addition, we can provide you with an access to our best in class technology tools such as Deloitte’s CbC Digital Exchange (“CDX”) which helps businesses collect and analyse the data needed under new CbC Reporting requirements. Users can preview, through a variety of lenses, how their data might look to stakeholders, including tax authorities and the public, and identify challenges in data collection. This exercise helps businesses to assess priorities and consider proactive steps needed before the CbC reporting requirements come into effect.

In particular, CDX’s simple, intuitive user interface offers:

A flexible upload process to allow approved users to contribute data by geography, business unit, or other segment into a central repository.

An aggregated view of the data in the required CbC reporting format.

Simulation functionality with the ability to run top-down and bottom-up scenarios.

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